SINGAPORE - Henn Tan, founder of the company that invented the thumb drive, was on Tuesday sentenced to one year and four months' jail for committing accounting fraud.
The 66-year-old former chief executive of mainboard-listed Trek 2000 International had pleaded guilty in August to five charges of engaging in conspiracies to falsify accounts, forge documents and cheat external auditors.
Another four similar charges were taken into consideration for his sentencing.
The court heard that Tan, who is Singaporean, had conspired between 2006 and 2011 with then chief financial officer Gurcharan Singh to falsify Trek 2000's financial statements pertaining to licensing income.
Their crimes were kept under wraps for years until Trek's 2000's auditors Ernst & Young (EY) discovered that Tan and his co-accused had cooked the books for financial year 2015.
Tan had realised at the time that the company's performance for financial year 2015 would be dismal and conspired with a few senior officers to inflate revenue and pre-tax operating profit by plucking a US$3.2 million sale from thin air - accompanied with false supporting documents.
When confronted about the transaction, Tan and his co-accused tried to deceive EY that the sale was genuine and the financial statements had been drawn up properly.
EY, however, discovered that the bank documents it had received were forged and began to conduct further audit procedures, including forensic imaging of the laptops and computers of Singh, then president of regional sales Foo Kok Wah, and former executive director Poo Teng Pin.
It also looked into past transactions and uncovered other fictitious deals in 2013.
Unconvinced by the explanations the accused gave, EY reported the matter to the Accounting and Corporate Regulatory Authority, stating that it believed Trek 2000's management had made false and misleading statements regarding the US$3.2 million sale. EY later issued a disclaimer of opinion for Trek 2000's financial statements for financial year 2015.
The cases of Foo and Singh are pending, while Poo has been sentenced to nine months' imprisonment.
Seeking a year and seven months' jail for Tan, Deputy Public Prosecutor Suhas Malhotra said the accused's crimes had undermined the integrity of the financial and securities market.
"By manipulating accounts and releasing falsified information, Tan had misled the investing public and undermined the statutory regime that ensures accounts released to the public are safe and reliable," he said.
The prosecutor added that Tan's offending behaviour had become more brazen over time and that he stood to gain the most from the offences as the company's biggest shareholder.
"The licencing income was inflated by 11 per cent in 2011 and by 2015, the figure had ballooned to 666 per cent of the income Trek 2000 was earning.
"When auditors suspected something was wrong, the accused took a massive loan from JP Morgan and transferred it to multiple accounts to show that payments had been made," said the DPP.
In mitigation, Senior Counsel Cavinder Bull said Tan being the largest shareholder of the company cannot be equated to his intention to personally gain from his offences.
"If the prosecution wants to make the point that my client has gained financially, they must meet the burden of proof with more than his shareholding and salary," he said.
Mr Bull, who is chief executive of Drew & Napier, added that his client is contrite as he had pleaded guilty, thus removing the need for a trial.
Earlier, Tan was fined $80,000 after he negligently did not get the firm to disclose US$10.5 million (S$15.1 million) worth of transactions.
He quit the helmsman role after the Singapore Exchange in 2018 objected to him continuing as the CEO, but he remained as chairman emeritus until 2020. Presently, his son Wayne is deputy chairman of Trek 2000.
Trek 2000 started as a small family-owned electronic parts trading firm in Geylang.
After 15 years at Japanese firm Sanyo and working his way up to be a director, Tan quit and bought over Trek for $1 million.
In 2000, Tan presented the thumb drive at an international technology fair in Germany. That year, Trek 2000 was listed on the Singapore Exchange.